LONDON, April 21 British retail sales posted their biggest quarterly fall in seven years during the first three months of 2017, as rising prices since last year's Brexit vote put more pressure on consumers, official data showed on Friday.

Sterling fell to a day's low after the weaker-than-expected figures, extending a decline that started after it reached a session peak around 0800 GMT.

Retail sales volumes contracted 1.4 percent in the first quarter after rising 0.8 percent in the last three months of 2016, the Office for National Statistics said.

It was the biggest quarterly decline since the first quarter of 2010, and it is likely to reinforce the view among many economists that household spending - the main driver of the economy - is now slowing sharply.

That may prove a concern for Prime Minister Theresa May, who earlier this week unexpectedly called for an early national election, in an effort to strengthen her mandate for the next two years of negotiating Britain's departure from the European Union.

"Families are facing the fastest rise in living costs for over three years and they are reining in their spending rapidly," Richard Lim, chief executive of the Retail Economics consultancy, said.

"We're concerned for the outlook for the retail industry given the toxic mix of rising operating and sourcing costs against a backdrop of weaker consumer demand and heightened political and economic uncertainty."

The ONS said falling retail sales were likely to shave around 0.1 percentage points off first quarter economic growth - the first negative contribution from the sector since the last quarter of 2010.

Retail sales volumes during March alone were worse than all forecasts in a Reuters poll of economists. They shrank by 1.8 percent, after a 1.7 percent increase in February.

"This is the first time we've seen a quarterly decline since 2013, and it seems to be a consequence of price increases across a whole range of sectors," ONS statistician Kate Davies said.

The ONS measure of retail prices rose 3.3 percent in March compared with a year ago, the biggest such increase in five years.

Broader official measure of consumer prices are also rising strongly, led by rising energy costs and the pound's fall following last June's vote for Brexit.

Although May pitched her surprise announcement of a June 8 national election as a chance to strengthen her hand in talks on separating from the EU, the economic outlook will figure strongly in the political debate during the weeks ahead.

Moreover, the outlook for consumer spending is key for policymakers gauging the outlook for Britain's economy as it gears up to leave the EU.

Reports from retailers themselves have been mixed. Associated British Foods' discount fashion arm, Primark, traded well through Britain's Easter holiday period, the group's boss said on Wednesday.

The ONS said there was no evidence to suggest the timing of the Easter holidays distorted the retail sales figures for March.

Year-on-year, retail sales growth slowed to 1.7 percent in March from 3.7 percent in February, compared with forecasts of 3.4 percent growth. (Editing by Larry King)